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Amazon’s costs rise faster than revenues, services overtake goods

The Amazon.com group did more in the third quarter, but earned less. The net profit has even halved. The reasons are significantly increased costs and investments as a result of the coronavirus pandemic. That won’t change anytime soon, warns the new CEO Andy Jassy. For the first time, his group is doing more with services than with goods.

“We have always said that given the choice between short-term profit and long-term customer interest, we choose the latter,” Andy Jassy reminded Thursday evening, “and you can see that in this phase of the pandemic.” Jassy had about that Amazon’s business figures for the third quarter of 2021 to report the first quarter under his leadership. Company founder Jeff Bezos resigned as CEO of Amazons in the middle of the year.

Net sales of goods rose by four percent compared to the same quarter of the previous year, and that of services rose by 29 percent. For the first time, service sales (56 billion dollars) are just above goods sales (55 billion dollars). In total, net sales rose 15 percent to $ 111 billion.

However, operating costs rose even more sharply, namely by 18 percent to 106 billion dollars. As a result, operating profit has fallen more than a fifth to $ 4.9 billion. Losses from financial assets and a doubled tax burden mean that net profit has even fallen by 50 percent to 3.2 billion dollars.

In the early phase of the pandemic, Amazon made sure to ensure the supply of essential goods. At the same time, the cloud division AWS helped companies and public institutions to continue their business. Both are now reflected in the business figures: Cloud sales have increased by 39 percent.

However, the high customer demand has also led to considerable costs: Amazon’s distribution is almost twice as large as before the pandemic, AWS had to build new data centers, the group pays higher salaries and now employs almost one and a half million people – almost twice as many as two years ago . Amazon is looking for hundreds of thousands of seasonal workers for the final quarter of the year. In the USA alone, where Amazon pays significantly more than the minimum wage, the company is temporarily hiring 150,000 people. Amazon has advertised more than 50,000 seasonal jobs in Europe, and more than 110,000 in India.

“We expect billions of dollars in additional costs in our consumer business in the fourth quarter (current),” warned the new CEO. Labor shortages and increased labor costs, global problems with supplies, and higher transportation and shipping costs all add up. The manager promises to do everything possible to keep the impact on consumers and retailers as low as possible: “This will be expensive for us in the short term, but it is the right setting of priorities for our customers and partners.” After this outlook was announced, Amazon.com shares traded four percent cheaper in after-hours trading.

Although AWS has also seen its costs rise sharply, these have developed almost parallel to the growth in sales. This enabled the group division to expand its operating profit by 38 percent to $ 4.9 billion. Amazon’s other businesses in North America just made an operating profit of $ 880 million (-61 percent). With sales of $ 66 billion, that’s a margin of over one percent.

Outside of the US and Canada, Amazon (omitting AWS ‘) has slipped into the red. A year ago, the company was able to generate 407 million dollars in operating profit abroad, this time it has to accept an operating loss of 911 million dollars. With the global outbreak of the pandemic, Amazon.com made money with its trading business outside of North America for the first time in the second quarter of 2020. This series lasted six quarters, now it’s broken.

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